Different Types of E-Commerce Business Models

November 3, 2020

If you’re looking to pursue an online store, you’ll probably want to understand better how e-commerce business models function. The more you’re acquainted with e-commerce models and its strategies, the better your chances of succeeding in the market. Let’s get into the four most commonly used electronic commerce classifications and five proven strategies that will help you grow your enterprise.

What Are the Different Models of E-Commerce?

Electronic commerce stands for buying and selling goods and/or services through the internet. This type of marketing has evolved over the years, improving e-commerce payment options drastically. Nowadays, online shopping is hitting momentum and is expected to increase by up to 80% by the end of 2020. Electronic commerce is convenient not only for retailers but offers cost benefits and privacy to customers as well. And when running an eCommerce business, it’s important to have reliable credit card processing services. Remember that merchant services for credit card processing systems will protect your clients and their information during the transaction.

Electronic commerce usually goes through the World Wide Web. However, it also encompasses a wide range of technologies like email, telephones, and mobile devices.

If you’re just starting your online business, you’ll notice how important it is to get familiar with its fundamentals. Electronic commerce takes knowledge, intuition, a solid plan, and detailed research of products and e-commerce business models. We have prepared a guide on different types of e-commerce models available to you. Each of them has its challenges and benefits, and some companies even operate in several types simultaneously. Knowing them in detail will help you see all your potential opportunities.

B2C: Business-to-Consumer

B2B, short for business-to-consumer, is the oldest and most common electronic commerce model. It started expanding in 1995 and is the most common type today, at least the one globally recognized by the general public. A website that follows the B2C model is selling its goods directly to a consumer. A customer can use the shopping cart to purchase all they need. They can overview the product on the site, order it in a few clicks, the website will send notification via email, and dispatch the goods to the customer. Payment is usually made with credit cards through payment gateways.

There are five B2C types you should be familiar with:

  • Direct sellers: This type we previously mentioned. It’s when internet users are buying goods from online retailers.
  • Online intermediaries: These are websites or organizations that bring a consumer and a seller together and take a cut of every transaction.
  • Advertising-based: This means that the information is given for free while the money is made from advertising placed throughout the site.
  • Community-based: A perfect example of this B2C type is Facebook. It makes money from ads targeted to its users based on their location and demographics.
  • Fee-based: Companies that are using this type are selling entertainment or information for a fee. The current most famous example is Netflix and, of course, any other newspaper based on subscription.

Many retailers have been closing their traditional shops and have been transferring their businesses online exclusively. A lot of them are also combining both traditional presence and online shopping websites to maximize the users’ experience. For example, many companies let their customers order a product online and pick it up at a local store. Also, if a customer wants to return a product booked online, they can just come to the shop for a quick exchange or a refund.

B2B: Business-to-Business

As the name suggests, the B2B type is focused on providing products from one business to another. The most common business-to-business electronic commerce model involves service providers. Yet, you’ll find many office supplies and furniture companies, software companies, and document hosting companies using it.

B2B can be divided into vertical and horizontal types. The vertical B2B type mainly involves manufacturing firms and can be categorized into downstream and upstream. The downstream type means that the manufacturer developed a working relationship with a material supplier. For example, a pencil company obtains wood and graphite from other manufacturers. The upstream type is the opposite of that. For instance, a paper mill started collaborating with a bookbinding company in order to supply it with enough paper for the produced books.

The horizontal B2B type involves services and products that don’t include raw supplies but are used by companies in other ways. Usually, these include services such as repair, maintenance, and operation. In other words, a janitorial company will make a contract with other companies to provide them with cleaning supplies. Here’s another example of a horizontal B2B model: a cybersecurity credit card processing company can offer its security software for credit card fraud prevention to an electronic commerce company.

C2B: Consumer-to-Business

The C2B electronic commerce model is used when the consumer offers its services and goods to businesses. This type of electronic commerce is also probably the most significant channel of employment. It can be divided into two categories: independent workers and freelancers.

Independent workers represent a group of people who are offering products or services for a website they created. They can interact directly with clients and are allowed to negotiate deals on their conditions. On the other hand, freelancers make the majority of the C2B electronic commerce type. They are product sellers or service providers on freelancing websites, such as Upwork, Fiverr, and other blog monetizing strategies, such as Google AdSense and affiliate marketing.

According to Nasdaq, the C2B industry is expanding, and freelancers will account for 43% of the total workforce in the US by the end of 2020. Workers in this type of industry also have a pretty different revenue model to B2C. In short, service providers earn as much as they work, with a limited opportunity to apply for a couple of jobs at once.

C2C: Consumer-to-Consumer

C2C or consumer-to-consumer type of e-commerce include facilitated transactions within consumers through a third party. We can use an online auction as a typical example. A consumer can post an object for sale to other consumers to bid on it. A third party is a mediator that earns the commission and is not in charge of checking the object’s quality. This type of transaction can be, of course, made without intermediaries. The most commonly known online market platforms include sites such as eBay, Amazon, and Craigslist.

Even though there are many pros of C2C electronic commerce type, such as the absence of upfront fees, unlimited product gallery, and buying objects without going through a central market, there are a couple of cons. For instance, nobody can guarantee the quality of bought items, and consumers can purchase at inflated prices.

5 Best Examples of Innovative E-Commerce Business Models

Now that you’ve got familiar with different types of e-commerce categories, you can better decide which strategy suits your business the best. Understanding previously mentioned electronic commerce types will help you avoid common mistakes business owners make, give you a significant advantage over competitors, and tune you to maximize the revenue. Let’s see different examples of e-commerce business strategies.

1.  Focus on Private Label Method If You’re a Beginner

If you’ve imagined a great product but don’t have the capacity or internal resources to manufacture it, a private label is a perfect method for you. Products can be ordered from manufacturers, while you’ll be the one to market and sell it under a private brand. On-demand manufacture will allow you to quickly shift suppliers if you’re not satisfied with the product’s quality. The costs are minimal when starting. This method is definitely a good beginning, especially if you’re planning to open your own facilities in the meantime.

What Are the Pros and Cons of the Private Label?

The private label is rapidly growing, and it is expected to quadruple over the next five years. Here are the two most compelling reasons to start with this type of strategy:

  • If you choose this method, know that you’ll be the one who developed and branded it. You’ll own the specifications, design, and have all the rights to sell your product under a private label. Therefore, your brand is completely separated from the competitors.
  • Private label wares also usually enjoy a pretty high profit of sales revenues. As a brand owner, you can take control of the manufacturing costs in order to minimize the COGS (the cost of goods sold).

Yet, you should be careful with the private labeling system because there are a few risks:

  • It can be quite challenging to find the right manufacturer. In order to minimize charges per unit, many private label owners will travel half the world, usually to developing countries such as Vietnam and China.
  • Your chosen manufacturers won’t be able to guarantee defect-free products. Regardless of the perfect prototype, managing quality checks will be necessary to avoid costly problems.
  • Selling labeled produce online through one vendor means limited customer access.

2.  White Label: Reselling Generic Produce to Consumers

The white label is similar to the previous method. You can choose an item that another company has already successfully sold and use its offered white label option. That means that you can design your own label, package that same item, and sell it. However, there’s an extensive competition you’ll have to deal with. Apart from that, you should know that you’ll be stuck with it if you cannot sell it. If you’re thinking about the white label method, think about high demand items and then start working on realizing the sales.

3.  Dropshipping Is the Perfect Method If You’re Starting With Little to No Capital

There are different types of businesses to choose from when starting your own. Yet, if you don’t have the capital to help you get started, consider using the dropshipping method. Basically, it implies that you’re selling goods you don’t actually own. You’ll put other company’s products on your website, and your customers will make an order. You just have to forward those orders to your dropship/supplier partner, and they will ship the goods to the customers. Methods like this one allow businesses to sell products without managing stocking inventory or dealing with packaging. The revenue comes from the price difference between what your dropship partner charges you and what you charge.

4.  Print-on-Demand: Customized Items for a Consumer

As the name suggests, print-on-demand types of businesses are focused on producing personalized products, like mugs, phone cases, mugs, t-shirts, leggings, hoodies, etc. If you decide to use it, know that this method is similar to the dropshipping one. You create a website with third-party products. When the order is made, that party can manufacture an item and ship it to the consumer. Upfront capital is not required, and you don’t have to deal with inventory management.

5.  Subscription Service Is Flourishing in the Electronic Commerce

The subscription service model is a fast-growing one. It allows consumers to subscribe to certain services for some time, usually monthly or annually. When the subscription period expires, consumers can renew or cancel it. Companies that are using this type of strategy have relatively good income streams and can quickly stimulate their audience to buy additional subscriptions or just encourage new subscribers. They have also found trustworthy credit card processing companies to make sure that all credit card transactions are safe.

Choose the Right Electronic Commerce Model for Your Business

And that’s all there is about e-commerce business models. Hopefully, this article helped you better understand how online businesses work and have successful revenue streams. We are sure that by now, you already have a perfect strategy planned out. Just in case, be sure to find reliable merchant services to help out with credit card processing. Use the knowledge you gained by reading our article, and you’ll thrive in the electronic commerce industry.

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